Qualcomm Incorporated (QCOM), which designs, develops, manufactures, and markets digital communications products and services in China, South Korea, Taiwan, and the United States, is one of the stocks in my portfolio. Their annual meeting is coming up on 3/9/2014. ProxyDemocracy.org had the votes of four funds when I checked and voted on 3/2/2015. I voted with management 89% of the time and assigned them a proxy score of 89.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Qualcomm 2015 proxy in order to enhance corporate governance and long-term value.
Qualcomm Incorporated ISS Rating
From Yahoo! Finance: Qualcomm Incorporated’s ISS Governance QuickScore as of Feb 1, 2015 is 10. The pillar scores are Audit: 10; Board: 3; Shareholder Rights: 10; Compensation: 8. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus… everything.
Qualcomm Incorporated Compensation
Qualcomm Incorporated Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Steven M. Mollenkopf, at about $60.7M. I’m using Yahoo! Finance to determine market cap ($119.6B) and Wikipedia’s rule of thumb regarding classification.
Qualcomm is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Qualcomm’s pay is substantially above that. Additionally, Qualcomm shares under-performed the NASDAQ over the most recent one, two, five and ten year periods.
The GMIAnalyst report I reviewed gave Qualcomm an overall grade of ‘D.’ According to the report:
- The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group, which is the case for 87.1% of companies in the S&P 500 index. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
- The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.
I voted against the pay package.
Qualcomm Incorporated Board of Directors and Board Proposals
According to GMIAnalyst, the Qualcomm board includes at least one executive director in addition to the CEO, characteristic of 32.5% of companies in this market. Multiple inside directors may provide a too-strong management voice within the boardroom. The board Chairman is an Insider or Executive Chairman. This practice raises parallel concerns as does the combination of CEO and Chair roles: a potential for overly powerful management interests and board level conflicts of interest.
The company has not adopted a full majority director election standard, greatly limiting the ability of company shareholders to hold members of the board accountable in uncontested elections. Majority voting has become a widely prevalent practice in the S&P 500 index, with only 70.9% failing to adopt this standard. There are 15 directors in all and the board met 9 times in the last reported year. There were also 9 non-executive meetings.
Director overboarding may be a problem for this board, with Harish Manwani sitting on five boards. That is too many, so I voted against him. He also doesn’t own any shares in our company.
I voted in favor of the employee stock purchase plan to provide an incentive to employees.
Qualcomm Incorporated Accounting
I voted to ratify Qualcomm’s auditor, PricewaterhouseCoopers LLP as Auditors, since less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at Qualcomm Incorporated
There are no shareholder proposals.
CorpGov Recommendations for Qualcomm Incorporated – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | DOMINI | CALVERT | CBIS | TRILLIUM | |
|---|---|---|---|---|---|---|---|
| 1a | Barbara T. Alexander | For | For | For | For | For | |
| 1b | Donald G. Cruickshank | For | For | For | For | For | |
| 1c | Raymond V. Dittamore | For | For | For | For | For | |
| 1d | Susan Hockfield | For | For | For | For | For | |
| 1e | Thomas W. Horton | For | For | For | For | For | |
| 1f | Paul E. Jacobs | For | Against | For | For | For | |
| 1g | Sherry Lansing | For | For | For | For | For | |
| 1h | Harish Manwani | Against | For | Against | For | For | |
| 1i | Steven M. Mollenkopf | For | For | For | For | For | |
| 1j | Duane A. Nelles | For | For | For | For | For | |
| 1k | Clark T. ‘Sandy’ Randt, Jr. | For | For | For | For | For | |
| 1l | Francisco Ros | For | For | For | For | For | |
| 1m | Jonathan J. Rubinstein | For | For | For | For | For | |
| 1n | Brent Scowcroft | For | For | For | For | For | |
| 1o | Marc I. Stern | For | For | For | For | For | |
| 2 | Ratify PricewaterhouseCoopers | For | For | For | Against | For | |
| 3 | Amend Employee Stock Plan | For | For | For | For | For | |
| 4 | Ratify NEO Compensation | Against | Against | Against | Against | Against |
Governance Issues at Qualcomm Incorporated
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Supermajority vote requirement (66.67%) to amend certain charter and all bylaw provisions.
Mark your Calendar to Submit Future Proposals at Qualcomm Incorporated
The deadline for submitting a stockholder proposal for inclusion in our proxy materials for our 2016 Annual Meeting of Stockholders is September 24, 2015. Stockholder nominations for director and other proposals that are not to be included in such materials must be received no earlier than November 10, 2015 and no later than the close of business on December 10, 2015. Any such stockholder proposals or nominations for director must be submitted to our Corporate Secretary in writing at 5775 Morehouse Drive, N-520I, San Diego, California 92121-1714. Stockholders are also advised to review our Amended and Restated Bylaws, which contain additional requirements for submitting stockholder proposals and director nominations.
Warnings
Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the % if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.
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